For most dentists and other small business owners, the thought of suddenly becoming incapacitated, or even dying, is at the top of the list of their biggest nightmares. Dentists, if the thought of something happening to you worries you, your concern is certainly understandable. The question, of course, is “what happens to my practice if something happens to me?” The answer to that question depends, to a large extent, on whether or not you prepared for the possibility of your incapacity or death.
In reality, the question “what happens to my practice if something happens to me?” contains a number of smaller questions, including:
- What happens to my business assets?
- What happens to my employees?
- What happens to my business debts?
- Who will run the business?
Creating a business succession plan as part of your overall estate plan will answer many of these questions. In the absence of a business succession plan the future of your business in the event of your death will depend on the legal structure of your business. If your business is a sole proprietorship then both the business assets and the business debts will be left to either the beneficiaries of your Last Will and Testament or your legal heirs in the event you died intestate. If your business is a legal partnership than the terms of your partnership agreement will determine what happens to your share of the business in the event of your death. Typically, either your partners are given the right to purchase your share of the business or your interest in the business becomes part of your estate and will eventually be transferred to your beneficiaries or heirs.
In the event that you become legally incapacitated without an incapacity plan in place the most likely outcome is that a spouse or other family member will petition a court to become your guardian and/or conservator. If the court grants the petition your guardian and/or conservator will legally control your estate assets, including your interest in the practice.
By creating a business succession plan and an incapacity plan you can avoid many of these unwanted outcomes. You can include estate planning documents such as a trust, a power of attorney, or an advance directive to make decisions now that will determine who controls your business in the event of your incapacity or death. If your business is a partnership, you might decide to enter into a buy-sell agreement that will legally obligate your partners to purchase your interest in the business in the event of your death, thereby liquidating your interest and providing cash that can be used to support your surviving family members.
As is the case in all business transactions, the key is to plan for the worst-case scenario. By planning ahead you can rest assured that your business will survive and your loved ones will be provided for if the worst-case scenario comes to pass.
For more information, please contact Bassim Michael at bmichael@bmichaelcpa.com